I also think that 3X income is a bit dated and needs to be adjusted for different areas also. The first problem is with low interest rates (4.5%), a 3X income mortgage is extremely affordable at 18% of gross income. At a 7% interst rate it jumps to 24% of gross income which is a different matter. The other problem is regional variances. In 92009 a decent 4BR home starts around 650K and comes with a $7,000 annual tax bill. With 20% down PITI is about $3400. Where I grew up back east a decent 4BR home starts around 350K which sounds much better but comes with a $20,000 annual tax bill. With 20% down PITI is about $3100/month.[/quote]
While interest rates certainly play a part, the 3X income rule existed during much better economic times — more job stability, more defined-benefit pensions, more employer-paid healthcare, wage inflation, etc. Perhaps it is dated because it’s too optimistic and assumes that people will have stable jobs and increasing wages? I think we should use 2X income. 🙂
